CESTAT Allahabad Says Revenue Can't Retain Tax Paid By Mistake, Orders ₹36.92 Lakh Refund To SAF Yeast

On 1 October, the Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that tax paid by mistake on an exempt service cannot be retained by the Revenue.

Judicial Member P.K. Choudhary directed the Revenue to refund Rs. 36,92,166 to SAF Yeast Company Pvt. Ltd. with 12% annual interest from the respective dates of deposit until payment. It also directed that the refund be made within three months. The Tribunal observed:

“The Revenue has no authority to retain the said amount as per provisions of Article 265 of the Constitution of India.”

SAF Yeast, a manufacturer of yeast, had paid service tax on transportation services used for carrying its goods. Transportation of “food stuff”, which included yeast, was exempt from service tax under the applicable exemption notification.

The Commissioner (Appeals) rejected the company's refund claim, noting that SAF Yeast had paid the tax for several years without claiming the exemption in its service tax returns. The Commissioner held that the company could not subsequently seek a refund by claiming that it was unaware of the exemption.

Before CESTAT, SAF Yeast argued that the service tax had been paid due to a mistake. Since the services were exempt, it submitted that no tax was legally payable and the amount could not be retained by the Revenue.

The Bench accepted the submission and noted that the Commissioner (Appeals) had not disputed SAF Yeast's entitlement to the exemption. It held that the amounts paid for 2013-14 and 2014-15 were payments made under a mistake of law and were not legally payable as service tax.

Relying on the Karnataka High Court's decision in Commissioner of Central Excise (Appeals), Bangalore v. KVR Construction, it held that where tax was never legally payable, an amount mistakenly paid as tax is in the nature of a deposit with the government. The limitation applicable to a claim for refund of tax would therefore not apply.

On interest, the Tribunal referred to earlier decisions granting 12% interest on amounts wrongly retained by the Revenue. It also noted that 12% interest had been granted in an earlier case involving SAF Yeast.

Accordingly, the CESTAT set aside the Commissioner (Appeals)' order and directed the Revenue to refund Rs. 36,92,166 with 12% annual interest from the respective dates of deposit until the refund is made.

For the Appellant: S.R. Agrawal, Stuti Saggi, Anand Bhattacharya and Sachin Shukla, Advocates.

For the Revenue: Chitra Srivastava, Authorised Representative. SAF YEAST